Uber Loses EU Court Fight as Judges Take Aim at Gig Economy

Uber Technologies Inc. will be regulated in European Union countries as a transport company after the bloc’s top court rejected its claim to be a digital service provider, a decision that could increase legal risks for other gig-economy companies including Airbnb.

While the EU Court of Justice’s ruling covered UberPop — which used drivers without taxi licenses and has already been shuttered in many countries due to the legal issues — it’s a real blow as the first definitive finding that Uber must be regulated by transport authorities.

The decision clarifies for the first time that connecting people via an app to non-professional drivers forms an integral part of a transport service. It rejects Uber’s view that such services are purely digital and could fuel further scrutiny of other gig-economy firms. Paris regulators are already clamping down on Airbnb, treating the home-rental service more like a hotel, and British food-delivery start-up Deliveroo is in the spotlight for its treatment of workers.

In the EU judges’ view, “the most important part of Uber’s business is the supply of transport — connecting passengers to drivers by their smartphones is secondary,” said Rachel Farr, senior employment lawyer at law firm Taylor Wessing. “Without transport services, the business wouldn’t exist.”

Uber has argued that it’s a technology platform connecting passengers with independent drivers, not a transportation company subject to the same rules as taxi services. The case has been closely watched by the technology industry because of its precedent for regulating the gig economy, where freelancers make money by plying everything from spare rooms to fast-food deliveries via apps on smartphones and PCs.

“After today’s judgment innovators will increasingly be subject to divergent national and sectoral rules,” said Jakob Kucharczyk, of the Computer & Communications Industry Association, which speaks for companies like Uber, Amazon.com Inc., Google and Facebook Inc. “This is a blow to the EU’s ambition of building an integrated digital single market.”

While the ruling is valid EU-wide, it remains limited to Uber’s services and won’t directly affect other disputes Uber is facing over how its drivers are treated. One such case is pending at the U.K. court of appeal.

“This ruling will not change things in most EU countries where we already operate under transportation law,” Uber said in a statement. “However, millions of Europeans are still prevented from using apps like ours.”

Wednesday’s case centered around UberPop, an inexpensive ride-hailing service in several European cities that allowed drivers without a taxi license to use their own cars to pick up passengers. Legal challenges have forced Uber to shutter UberPop in most major European countries in favor of UberX, which requires drivers to get a license.

Europe is taking a stricter approach to regulating American tech giants. German regulators this week accused Facebook of violating antitrust laws by using data it collects on users, while France’s top privacy regulator told WhatsApp to stop sharing user data from the app with Facebook, which bought the messaging service in 2014. The European Commission has also targeted Google, Apple and Amazon over their business practices and tax affairs.

The ruling adds to the challenges facing Uber CEO Dara Khosrowshahi, who wants to take the company public by 2019. Since joining in August, Khosrowshahi has faced a boardroom battle with Uber co-founder Travis Kalanick, a headline-grabbing lawsuit alleging the company stole autonomous car technology from Alphabet Inc.’s Waymo, various government investigations, the threat of losing its taxi license in its biggest European market of London, and revamping a company culture considered unwelcoming for women, among other controversies.

Meanwhile, the company continues to lose money and faces a growing roster of well-funded rivals, from Lyft in the U.S., to China’s Didi Chuxing in Asia.